creases the bodily strength of the laborer, and the comfortable hope of bettering his condition and of ending his days, perhaps, in ease and plenty, animates him to exert that strength to the uttermost. Where wages are high, accordingly, we shall always find the workmen more active, diligent and expeditious, than where they are low; in England, for example, than in Scotland; in the neighborhood of great towns than in remote country places. Some workmen, indeed, where they can earn in four days what will maintain them through the week, will be idle the other three. This, however, is by no means the case with the greater part. Workmen, on the contrary, when they are liberally paid by the piece, are very apt to over-work themselves, and to ruin their health and constitution in a few years."- Wealth of Nations, book 1, chap. 8.

The American system rests upon the belief, that in order to make labor cheap, the laborer must be well fed, well clothed, well lodged, well instructed, not only in the details of his handicraft, but in all general knowledge that can in any way be made subsidiary to it. All these cost money to the employer and repay it with interest. That we have made greater progress than has been made elsewhere on the earth's surface, in raising up a body of such laborers, is the highest warrant for believing, that they can carry any raw material which our land produces to the last degree of manufac ture, more cheaply than it has ever yet been done elsewhere.

R. S. thinks it untrue, of machinery or any other thing that can be correctly called capital, that it will never bring as much as it cost to produce. The proposition which I stated of course did not relate to an immediate sale. It is doubtless true as a general rule, that any piece of machinery, upon its completion, will bring its cost. Every improved machine, for which a patent can be procured, will, during the duration of the patent, produce more than cost, and the ordinary rate of profit. But every improvement is such, in virtue of the fact that it cheapens the production of something else. The moment it comes into use, the commodity, whatever it may be, the process of obtaining which it facilitates, is offered in market at a reduced cost. But all existing commodities of the same kind must also fall to the same price. They will bring only what it now costs to produce them. To borrow an illustration from one of Bastial's pamphlets, I can go into any book store and purchase a bible for fifty cents, half the price of a day's labor of an unskilled workman. A few centuries ago it required at least three hundred days' labor of a skilled and instructed workman, to produce a manuscript copy of the scriptures, inferior in every respect to the printed one. If all the processes by which the production of books has been thus cheapened could have come into use in one day, it is very clear that the entire stock of manuscript bibles would have fallen at once to the six hundredth part of their former value. But each one of the successive improvements in the art of making books had an effect precisely similar in kind, though less in degree, on the existing supply of books. And what is capital but the sum total of commodities, some one or more of which is every day losing a part of its value by reason of the introduction of improved processes and machinery, by which they can be reproduced at less than it cost to produce them originally? Every step in improvement gives labor additional command over some one of the constituents of capital, and consequently raises the ratio between the value of existing labor and the sum total of capital. The capital of a nation which is not absolutely torpid and stationary, or every nation which is making the

slightest industrial progress, will each day command less labor than it would on the preceding day.

To show that the same proposition holds true as to land, it is only necessary to demonstrate that it owes its whole value to labor. Mr. Webster, in a speech at Buffalo last summer, put the statement thus :-"Land is a theater for the application and exhibition of human labor; and where human labor goes, there it creates its value, and without it, it is not worth a rush, from "Dan to Beersheba." I don't wish to say that on every acre of land there must be a settlement; but there must be human labor somewhere near it; there must be something beside the mathematical divisions apportioning it into sections, half sections, and quarter sections, before land is of any value whatever.

Now the proposition is, that the land will not bring as much as the cost of the labor in and near it, to which it owes its entire value. In the case of a farm in the neighborhood of a city, suggested by R. S., the difficulty is to enumerate and estimate the value of all the labor expended in the city, and to apportion it among the various tracts which have had their value enhanced by such expenditure. This difficulty, however, disappears when we consider a region of sufficiently large extent. Take the state of New York, for example. I regret that we have not the amount of the county valuation for the present year, which, for the first time, will give any tolerable approximation to the value of the land. Suppose it, however, to be $1,200,000,000, which is more than double the valuation of last year.

This

is equal to the cost of four years' work of one million of men working three hundred days to the year, at a dollar per diem wages. Let R. S. now conceive the State in the condition it was when Hendrick Hudson anchored in Manhattan Bay. Let him reflect upon all the work that has been done since then, the forests that have been felled, the roads, railways and canals, that have been constructed, the swamps that have been drained, the buildings, public and private, that have been erected, the fences, wharves, bridges and structures of every description, that go to make this State what it is, and then consider whether four years' or ten years' labor of a million of men would suffice to do the work that has made the Empire State. After studying upon this problem for a while, we will readily perceive how it has come that all great landholders have such capital, and will appreciate the discriminating judgment of Madame de Sevigne, when she wrote to her son from the country "I wish my son would come here and convince himself of the fallacy of fancying ourselves possessed of wealth when one is only possessed of land."

If he should be desirous of pursuing the subject further, I beg leave to refer him to Mr. Carey's chapter on the cost and value of existing landed capital, in the first volume of his Principles of Political Economy, where it is discussed with much more perspicuity, force, and copiousness of illustration and proof than I could bring to it. The same indeed may be said of every point mooted in this article, and that of which it is a continuation. The consciousness of this has been a continual embarrassment, and I could not have reconciled myself to the reproduction of his ideas in so much more imperfect a dress and accompaniments than the original, but for the hope that they might thus be brought to the knowledge of some whom they might otherwise have failed to reach, and that they may be the more stimulated to resort to the fountain head.

I should perhaps apologize for loading my text with so many quotations. My justification is to be found in the desire to show that Protectionist though I be, I am so upon principle, taught by the leading English economists, and that I am not to be turned out of the free-trade ranks without impeaching the orthodoxy of a good many of them.

E. P. S.

Art. III. MONEY OF PAPER-OR INCONVERTIBLE PAPER-MONEY.

As early as 1839 we published, at Brussels, a work in which it was proved to a demonstration, that gold and silver coin furnish an imperfect kind of money, but poorly performing the office of a medium of exchange, especially in those countries where monetary operations are carried on upon a very large scale; and we proposed to substitute for coin, a money of paper, as being better calculated for the rapid exchange of values.

This idea of creating money, whose sole distinctive property is value, out of a material without inherent value, called forth violent opposition in Europe, even among enlightened men, so close does the old and universal idea that gold and silver are the only materials which can be conveniently converted into money, shut the door, as it were, against any idea not in accordance with it, notwithstanding the strength of the well-founded arguments adduced in support of it.

Our satisfaction may therefore be easily imagined, when we found that in this favored land, the United States of America, where the tendency of everything is rapid towards the improvement of society, the idea of forming a currency of paper has been entertained and recommended by distinguished writers who have given their attention to the discussion of the mooted questions of Political Economy.

In an article published in the Merchants' Magazine for the month of October last, Mr. N. HI. C. proposes the substitution of State notes for the present currency, these notes to be the exclusive currency of the country.

Mr. G. Bacon, in a communication published in the May number of the Merchants' Magazine, proposes in like manner to substitute paper issued by the State for paper issued by banks, and to retain coin only in quantities sufficient for fractional sums.

Here, then, we have proclaimed the principle, that a money of paper issued by the State may be substituted with advantage for a metallic currency, and we take pleasure in rendering a due tribute of praise to the writers named above, who, like true Americans, take the van in the field of commercial science, while the people of the old world lag behind in the rear with our old and unconquerable prejudices.

But, having paid this tribute of admiration, we feel bound to point out the false applications which these gentlemen make of the principle which they advocate.

Mr. N. H. C. would have the State emit as many notes (these notes to be the money of the country) as the owners of any capital yielding income may desire, they giving mortgage securities. This, it is evident, would be actually a loan made by the State to the owners of capital yielding revenue, but with the difference that the loan would be obligatory and gratuitous, and the borrower would have no interest to pay.

The proposition of Mr. N. H. C. is a violation of the principle on which rests a system of money of paper, that is to say, Mr. N. H. C. thinks it necessary to give a guaranty to these State notes which we call money of paper, while, according to our theory, this money is a value which, like all other values, exists in and by itself, and is subject to the general law of values, that of demand and supply; that is to say, the quantity in circulation, and the aggregate of wants which money is designed to supply. To require for monetary value any other guaranty than that proceeding from demand and supply, is to return to the old notion that money has no other value than that of the material of which it is made, or that of the things which furnish a guaranty for it; it is to declare the system of money of paper, absurd and chimerical.

To demonstrate the position that the value of money is a value sui generis, independent of the value of the material of which it is made, or the guaranties by which it is secured; in other words, to demonstrate that the system of money of paper which rests upon the doctrine, is positive, rational, practicable, we should have to reproduce the arguments and developments contained in the work above referred to. But, as it is impossible to do this, we must refer the reader to a criticism from the Revue Britannique published in the December number of Hunt's Merchants' Magazine, where our views and doctrines with regard to the subject of money are clearly and succinctly set forth.

There is moreover a further objection to the system of Mr. N. H. C.

One of the principal advantages to be derived from a good monetary system is the greatest possible freedom from fluctuation in the value of the unit of money. Now, to bring about this result, it is necessary to keep in circulation as much money as the wants of the community require; that is to say, not to increase the supply, the demand remaining the same. Now, in Mr. N. H. C.'s system, the aggregate of money increases in proportion as capitalists procure new loans, while the want of money-that is to say, the demand, remains the same.

The expression, want of money, which we have employed, does not mean the wants of those who have acquisitions to make and plans and agreements to carry out. These wants are immeasurable, like the desires of men; it is not these wants which money is designed to satisfy; what supplies these wants is those things of which a use can be made, corn, cotton, iron, or anything of that kind; money serves only as a medium, a vehicle to bring these things within the reach of those who want them and who have other things to give in exchange.

By the want of money, in this discussion of the best monetary system, must be understood, the want of a medium of exchange of values, one for another; but of real values, of values already created, already in existence at the time of the exchange. Now the notes which the State gives to the capitalist who asks for them, are not in the power of the State to give in consequence of a previous exchange of values, but they are a new emission, and an abuse of money which increases by so much the mass in circulation; an increase which becomes very considerable in proportion as new emissions take place, and which, in consequence, diminishes the value of the money of the country, by taking from it that freedom from fluctuation which it is so necessary to maintain in the value of money.

It will be seen from the statements just made, that it is not in the power of the State, or of any one else, to create new money values. It may create new units of money, by increasing the number, but the total value of these

units is not increased, since the value of the unit diminishes, in proportion to the increase of the number. This is what resulted from the arrivals of gold from California. The gold regions of that country increase the aggregate mass of gold in existence, and the number of pieces coined from the metal, but they do not increase the sum total of their value. In fact gold coin is already depreciated, although but slightly, as compared with silver coin, which has not undergone any increase of value. To enable the reader, however, to perceive the full force of these rather abstract principles, we must refer him to the article in the Revue Britannique, where their truth is amply demonstrated. It is from not comprehending their true import that reformers like Prudhomme and others, have been led to conceive the possibility of banks of the people, from which any one might borrow as much capital as he needed. These Utopians imagine that by issuing paper which they call money they are creating money, as if capital was anything else than those things which have the property of satisfying our wants, and not bits of paper, which, by improperly making them take the place of money, serve only to depress the value of real money.

Mr. G. Bacon, whose essay is full of judicious observations, and evinces an inquiring spirit, has also fallen into the error of supposing that it is necessary to redeem paper money in order to maintain its value; only in place of redemption in specie of gold and silver, he would have it redeemed by State stocks. We grant that there is a luminous idea involved in this plan, the end proposed to be attained by this mode of redemption, according to Mr. Bacon, being to fix the rate of interest on capital in accordance with, or at least to make it oscillate in harmony with, the rate of interest allowed on State stocks; but we do not think Mr. Bacon's system reaches the object proposed.

Mr. Bacon, it would seem, thinks that the rate of interest on capital is regulated by the amount of money in the country. And he thinks that the larger the supply of money, the lower the rate of interest, and vice versa.

This opinion rests on the idea that coin and capital are one and the same thing.

Now, capital is not money, but it is that thing which the owner abstains from using himself, and lends to a third person in consideration of return, which, by common consent, is termed interest. Money, by means of which the loans take place, is not itself (as we have above shown) the thing loaned; it is simply the vehicle by which the thing loaned is transferred from the lender to the borrower.

Thus it is not the abundance or the scarcity of money, that is, of the medium of loans, which governs the rate of interest, but the abundance or scarcity of things held in reserve for loaning. We say in conversation, it is true, money is scarce, money is plenty, to account for the rise or fall of the rate of interest; but this language, which is in such general use, is but one of the thousand improper modes of expression which mislead the judgment by conveying false ideas of the true nature of things.

But we may be asked, whence arise fluctuations in the rate of interest on capital, since the quantity in existence is nearly the same before as after a movement of this kind?

We might ask the same question with regard to money. When a panic takes place there is neither more nor less money than there was just before. It is because the rate of interest is regulated not by the quantity of capital in existence, but by the quantity offered. If any cause whatever produces